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Fractured Patent Appeals Court Casts Shadow Over Computer Software Patents

The Court of Appeals for the Federal Circuit (the Federal Circuit), in a highly fractured en banc decision, throws doubt on the validity of many computer software patents in its recent decision,  CLS Ba by nk International v. Alice Corporation, Case No. 2011-1301 (Fed. Cir. May 10, 2013) (available here).  Rather  than clarify the law as to whether computer program patents (with computer method claims, computer media claims and computer system claims) are patent eligible subject matter under the Patent Act, Section 101, 35 U.S. C. Sec. 101, the per curium opinion notes “While Chief Judge Rader is correct to note that no single opinion issued today commands a majority, seven of the ten members, a majority, of this en banc court have agreed that the method and computer-readable medium claims before us fail to recite patent-eligible subject matter. In addition, eight judges, a majority, have concluded that the particular method, medium, and system claims at issue in this case should rise or fall together in the§ 101 analysis.”

Procedurally, the trial court had earlier held that certain claims of Alice’s patents were invalid under 35 U.S.C. § 101 as being abstract ideas which are not patentable subject matter under the Patent Act.  The first Federal Circuit decision held that Alice’s patent claims were all patent eligible under § 101.  CLS Bank Int’s v. Alice Corp., 685 F.3d 1341 (Fed. Cir. 2012), vacated, 484 F. App’x 559 (Fed. Cir. 2012).  As noted, the Federal Circuit vacated its earlier ruling and, in this en banc case before all the appellate court judges, the Court affirmed “the district court’s judgment in its entirety and [held] that the method, computer-readable medium, and corresponding system claims … recite patent-ineligible subject matter under 35 U.S.C. § 101.”

Because the opinions from the highly divided Court span 135 pages, only the per curium opinion is reported herein. The Court’s opinion is extensively quoted since condensation may further confuse our readers.

“The statute sets forth four broadly stated categories of patent-eligible subject matter: processes, machines, manufactures, and compositions of matter. As the Supreme Court has explained, Congress intended that the statutory categories would be broad and inclusive to best serve the patent system’s constitutional objective of encouraging innovation.” (citing Diamond v. Diehr, 450 U.S. 175, 191 (1981) and  Diamond v. Chakrabarty, 447 U.S. 303, 308-09 (1980)).

“While the categories of patent-eligible subject matter recited in § 101 are broad, their scope is limited by three important judicially created exceptions. ‘[L]aws of nature, natural phenomena, and abstract ideas’ are excluded from patent eligibility, Diehr, 450 U.S. at 185, because such fundamental discoveries represent ‘the basic tools of scientific and technological work.’” (citing  Gottschalk v. Benson, 409 U.S. 63, 67 (1972)).

“But danger also lies in applying the judicial exceptions too aggressively because ‘all inventions at some level embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas.’ Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289, 1293 (2012). Taken too far, the exceptions could swallow patent law entirely.”


“For example, deciding whether or not a particular claim is abstract can feel subjective and unsystematic, and the debate often trends toward the metaphysical, littered with unhelpful analogies and generalizations. What is needed is a consistent, cohesive, and accessible approach to the § 101 analysis – a framework that will provide guidance and predictability for patent applicants and examiners, litigants, and the courts. As set forth below, the Supreme Court’s foundational § 101 jurisprudence offers the guideposts to such a system, one that turns primarily on the practical likelihood of a claim preempting a fundamental concept.”

Once the abstract idea is identified, the Supreme court has “measured the scope of the claims [in the Benson case] against the scope of that overarching abstract idea. In practice, the claims [in for converting binary coded decimal (BCD) numerals into pure binary numerals] were ‘so abstract and sweeping as to cover both known and unknown uses of the BCD to pure binary conversion’ and would thus reach every application of the basic conversion algorithm, in contrast to earlier cases concerning patent-eligible process claims that had been cabined to discrete applications ‘sufficiently definite to confine the patent monopoly within rather definite bounds.’” (citing Gottschalk v. Benson, 409 U.S. at 68 – 69).

In Benson, the Supreme Court said: ”The mathematical formula involved here has no substantial practical application except in connection with a digital computer, which means that if the judgment below is affirmed, the patent would wholly pre-empt the mathematical formula and in practical effect would be a patent on the algorithm itself.”  Id. at 71 – 72.   However in that Benson case, the predecessor of the Federal Circuit, the CCPA, had approved those patent claims and “had interpreted both claims as requiring a computer and had upheld them on that basis.”  See In re Benson, 441 F.2d 682, 687-88 (CCPA 1971).

“Six years later [after Benson], in Parker v. Flook, 437 U.S. 584 (1978), the Supreme Court again considered the patent eligibility of a computerized process – in particular, a method for updating alarm limits for continuously monitored industrial process variables (e.g., temperature or pressure) according to a disclosed mathematical formula.”

“Although the claim would not wholly preempt’ the mathematical formula, id. at 589, the [Supreme] Court nonetheless held that the claimed process fell under the abstract ideas exception to patent eligibility. In its analysis, the Court viewed the formula as an abstract principle and stated that the case must ‘be considered as if the principle or mathematical formula were well known.’ Id. at 592. The Court then asked whether, to confer patent eligibility, the claim contained sufficient substance beyond the abstract mathematical formula itself-that is, ‘some other inventive concept in its application.’ Id. at 594; see also id. at 590 (‘A competent draftsman could attach some form of post-solution activity to almost any mathematical formula . . . .’). Concluding that the field-of-use, monitoring, adjusting, and computer limitations were trivial or ‘well known’ under such an analysis, the Court held that the claims were not patent eligible, …).”

In Diamond v. Diehr, 450 U.S. 175, 191 (1981), “[t]he claimed methods included steps for operating a rubber molding press that included constantly determining the temperature inside the mold, repetitively calculating the necessary cure time using a mathematical formula known as the Arrhenius equation, and opening the press whenever the elapsed cure time equaled the calculated necessary cure time.”

“[T]he [Supreme] Court distinguished Flook on the basis that the claim there provided no substantive details regarding the method’s actual performance— rather, ‘[a]ll that it provides is a formula for computing an updated alarm limit.’  See id. at 186–87 (quoting Flook, 437 U.S. at 586). In contrast, in Diehr, the claimed process incorporating the Arrhenius equation also called for steps including ‘constantly measuring the actual temperature inside the mold,’ a step that was said to be new in the art. See id. at 178 – 79.”

The Federal Circuit then discussed Bilski v. Kappos, 130 S. Ct. 3218 (2010).  “Applying Benson, Flook, and Diehr, the Supreme Court held that the claims [in Bilski] failed to recite a patent-eligible process because they covered the abstract idea of hedging against risk. ‘Allowing [the claims] would pre-empt use of this approach in all fields, and would effectively grant a monopoly over an abstract idea.’ Id. at 3231.”

The Federal Circuit further considered Mayo v. Prometheus.  “Accordingly, the claims [in Mayo] recited the specific steps of administering the thiopurine drug and determining the resulting metabolite concentration in the patient’s blood, wherein a concentration above or below predefined thresholds indicated a need to adjust the drug dose. See id. at 1295 (claim 1).”  “The Supreme Court held that those claims failed the § 101 test for subject-matter eligibility. Therefore, the question was ‘whether the claims do significantly more than simply describe these natural relations’; did they ‘add enough’ to the natural law to render the claimed processes patent eligible? Id. at 1297. Examining the other limitations, the [Supreme] Court concluded that the ‘administering’ and ‘determining’ steps were insufficiently limiting or inventive to confer patent eligibility.”

“First and foremost is an abiding concern that patents should not be allowed to preempt the fundamental tools of discovery-those must remain ‘free to all … and reserved exclusively to none.’ Funk Bros. Seed Co. v. Kalo Inoculant Co., 333 U.S. 127, 130 (1948).” Preemption features prominently in the Supreme Court’s decisions of Mayo, 132 S. Ct. at 1301; Bilski, 130 S. Ct. at 3231; Diehr, 450 U.S. at 187; Benson, 409 U.S. at 72, O’Reilly v. Morse, 56 U.S. 62, 113 (1853) (rejecting a claim that would have broadly conferred “a monopoly” in the use of electromagnetism, ”however developed, for the purpose of printing at a distance”).

“To be clear, the proper focus is not preemption per se, for some measure of preemption is intrinsic in the statutory right granted with every patent to exclude competitors, for a limited time, from practicing the claimed invention. See 35 U.S.C. § 154. Rather, the animating concern is that claims should not be coextensive with a natural law, natural phenomenon, or abstract idea; a patent-eligible claim must include one or more substantive limitations that, in the words of the Supreme Court, add ‘significantly more’ to the basic principle, with the result that the claim covers significantly less. See Mayo 132 S. Ct. at 1294. Thus, broad claims do not necessarily raise § 101 preemption concerns, and seemingly narrower claims are not necessarily exempt. What matters is whether a claim threatens to subsume the full scope of a fundamental concept, and when those concerns arise, we must look for meaningful limitations that prevent the claim as a whole from covering the concept’s every practical application.” (Citing Mayo at 1302).

“Thus, claim drafting strategies that attempt to circumvent the basic exceptions to § 101 using, for example, highly stylized language, hollow field-of-use limitations, or the recitation of token post-solution activity should not be credited.”

“Finally, the [Supreme Court’s] cases urge a flexible, claim-by-claim approach to subject – matter eligibility that avoids rigid line drawing. Bright – line rules may be simple to apply, but they are often impractical and counterproductive when applied to § 101.”

“Accordingly, the Supreme Court has rejected calls for a categorical exclusion of so-called business method claims and has held that the formulaic ‘machine-or-transformation’ test cannot be the exclusive means for determining the patent eligibility of process claims. Bilski, 130 S. Ct. at 3227-29. What is needed is a flexible, pragmatic approach that can adapt and account for unanticipated technological advances while remaining true to the core principles underlying the fundamental exceptions to § 101.”

“A preliminary question in applying the exceptions to such claims is whether the claim raises § 101 abstractness concerns at all. Does the claim pose any risk of preempting an abstract idea? In most cases, the answer plainly will be no.”

“In short, one cannot meaningfully evaluate whether a claim preempts an abstract idea until the idea supposedly at risk of preemption has been unambiguously identified. Although not required, conducting a claim construction analysis before addressing § 101 may be especially helpful in this regard by facilitating a full understanding of what each claim entails.” (Citing Bancorp Servs., LLC v. Sun Life Assurance Co. of Can., 687 F.3d 1266, 1273 – 74 (Fed. Cir. 2012)).

The Section 101 Inventive Concept – Substantive Claim Limitations

“The requirement for substantive claim limitations beyond the mere recitation of a disembodied fundamental concept has ‘sometimes’ been referred to as an ‘inventive concept.’  See Mayo, 132 S. Ct. at 1294 (citing Flook, 437 U.S. at 594). We do not read the [Supreme] Court’s occasional use of that language in the § 101 context as imposing a requirement that such limitations must necessarily exhibit ‘inventiveness’ in the same sense as that term more commonly applies to two of the statutory requirements for patentability, i.e., novelty and nonobviousness. See 35 U.S.C. §§ 102, 103. The phrase ‘inventive concept’ originated with Flook, yet the Court began its discussion of § 101 in that case by stating that the question of patenteligible subject matter ‘does not involve the familiar issues of novelty and obviousness that routinely arise under §§ 102 and 103.’  437 U.S. at 588.”

“An ‘inventive concept’ in the§ 101 context refers to a genuine human contribution to the claimed subject matter.”  “In addition, that human contribution must represent more than a trivial appendix to the underlying abstract idea. The § 101 preemption analysis centers on the practical, real – world effects of the claim.  Limitations that represent a human contribution but are merely tangential, routine, well – understood, or conventional, or in practice fail to narrow the claim relative to the fundamental principle therein, cannot confer patent eligibility.”

“For example, the ‘administering’ and ‘determining’ steps in Mayo might have appeared to be concrete limitations representing true human contributions to the claimed methods … Yet the Court held that those steps failed to render the claims patent eligible because, as a practical matter, they were necessary to every practical use of what it found to be a natural law and therefore were not truly limiting. Mayo, 132 S. Ct. at 1298.”

“Also in Mayo, the [Supreme] Court instructed that the added steps, apart from the natural law itself, must amount to more than ‘well-understood, routine, conventional activity previously engaged in by researchers in the field.’ 132 S. Ct. at 1294. Similarly, token or trivial limitations, see Diehr, 450 U.S. at 191-92 (stating that ‘insignificant post-solution activity will not transform an unpatentable principle into a patentable process’), or vague limitations cast in ‘highly general language,’ Mayo, 132 S. Ct. at 1302, have failed to satisfy § 101. Finally, bare field-of-use limitations cannot rescue a claim from patent ineligibility where the claim as written still effectively preempts all uses of a fundamental concept within the stated field. Bilski, 130 S. Ct. at 3230 (discussing  Flook and Diehr). Whether a particular claim satisfies the § 101 standard will vary based on the balance of factors at play in each case, and the fact that there is no easy bright – line test simply emphasizes the need for the PTO and the courts to apply the flexible analysis above to the facts at hand.”

To recap, claim limitations which do not support Section 101 patent eligible subject matter are: (1) well-understood steps, routine or conventional steps which are used by researchers in the field; (2) token or trivial limitations; (3) insignificant post-solution activity; (4) vague limitations cast in highly general language; (5) “extravagant language to recite a basic function” (see “Alice Patents” section below); (6) generic computer functionality that lends speed or efficiency to the performance; and (7) bare field-of-use limitations.  These claim limitations effectively preempt all uses of a fundamental concept within the stated field.

Section 101 Inventive Concept Is Different Than Novelty and Nonobviousness

“Thus, the Supreme Court used the language ‘routine’ and ‘conventional’ in Mayo to indicate what qualities added to a natural law do not create patent-eligible subject matter. See Mayo, 132 S. Ct. at 1298. We do not therefore understand that language to be confused with novelty or nonobviousness analyses, which consider whether particular steps or physical components together constitute a new or nonobvious invention. Analyzing patent eligibility, in contrast, considers whether steps combined with a natural law or abstract idea are so insignificant, conventional, or routine as to yield a claim that effectively covers the natural law or abstract idea itself.”

Inventive Concept Is A Separate, Not A Threshold, Analysis And Issued Patents Are Presumed Valid

“Two other considerations are worth noting with respect to the § 101 analysis. First, some have argued that because § 101 is a ‘threshold test,’ Bilski, 130 S. Ct. at 3225, district courts must always consider subject-matter eligibility first among all possible bases for finding invalidity. That is not correct.”

“Second, it bears remembering that all issued patent claims receive a statutory presumption of validity. 35 U.S.C. § 282; Microsoft Corp. v. i4i Ltd. P’ship, 131 S. Ct. 2238 (2011).”

The Alice Patents in Suit

The patent owner Alice Corp. argued that the following claim limitations for “shadow accounts” made the computer method claims, the computer readable medium claims (so-called ‘Beauregard claims,’ named for In re Beauregard, 53 F.3d 1583 (Fed. Cir. 1995)) and the apparatus or computer system claims eligible patent subject matter.

Computer Method Claims

Claim 33.  A method of exchanging obligations as between parties including: (1) creating a shadow credit record and a shadow debit record for each stakeholder party and (2) at the end-of-day, the supervisory institution instructing ones of the exchange institutions to exchange credits or debits to the credit record and debit record of the respective parties in accordance with the adjustments of the said permitted transactions, the credits and debits being irrevocable, time invariant obligations placed on the exchange institutions.

“Briefly, the claimed process requires the supervisory institution to create shadow records for each party that mirror the parties’ real-world accounts held at their respective ‘exchange institutions.’ At the end of each day, the supervisory institution irrevocably instructs the exchange institutions to carry out the permitted transactions.”

The Court found that the shadow accounts were “a form of escrow.  CLS describes that concept as ‘fundamental and ancient,’ but the latter is not determinative of the question of abstractness.  But whether long in use or just recognized, abstract ideas remain abstract. The concept of reducing settlement risk by facilitating a trade through third-party intermediation is an abstract idea because it is a ‘disembodied’ concept, In re Alappat, 33 F.3d 1526, 1544 (Fed. Cir. 1994) (en banc).”

“First, the requirement for computer implementation could scarcely be introduced with less specificity; the claim lacks any express language to define the computer’s participation. In a claimed method comprising an abstract idea, generic computer automation of one or more steps evinces little human contribution. There is no specific or limiting recitation of essential, see SiRF Tech., Inc. v. Int’l Trade Comm’n, 601 F.3d 1319, 1332 – 33 (Fed. Cir. 2010), or improved computer technology, see Research Corp. Techs., Inc. v. Microsoft Corp., 627 F.3d 859, 865, 868 – 69 (Fed. Cir. 2010), and no reason to view the computer limitation as anything but ‘insignificant postsolution activity’ relative to the abstract idea, see Fort Props., Inc. v. Am. Master Lease LLC, 671 F.3d 1317, 1323 – 24 (Fed. Cir. 2012). Furthermore, simply appending generic computer functionality to lend speed or efficiency to the performance of an otherwise abstract concept does not meaningfully limit claim scope for purposes of patent eligibility.”

“With the term ‘shadow record,’ the claim uses extravagant language to recite a basic function required of any financial intermediary in an escrow arrangement.”

“Finally, providing end-of-day instructions to the exchange institutions to reconcile the parties’ real – world accounts with the day’s accumulated adjustments to their shadow records is a similarly trivial limitation that does not distinguish the claimed method. According to the claim, each permitted transaction during the day prompts corresponding shadow record adjustments, which the
exchange institutions must honor as ‘irrevocable’ payment obligations. E.g., ‘479 patent col. 65 11. 36-50. Whether the instructions are issued in real time, every two hours, or at the end of every day, there is no indication in the record that the precise moment chosen to execute those payments makes any significant difference in the ultimate application of the abstract idea.”

Computer-Readable Medium Claims

“As with the method claims, two other judges of this court, in addition to those joining this [per curium] opinion, similarly conclude that the computer-readable medium claims are not patent eligible.”

Computer System Apparatus Claims

The Federal Circuit noted the disjointed opinions of the Court on this topic and stated: “Before addressing these claims in particular, we again note that our colleagues on the court, other than those joining this opinion, have agreed that, at least in this case, the method, medium, and system claims should be considered together for purposes of § 101. Three other judges on this court – for a total of eight – have so concluded.”

A truncated version of Claim 1 of the Alice ‘720 patent stated: “1. A data processing system to enable the exchange of an obligation between parties … a data storage unit having stored therein information about a shadow credit record and shadow debit record … a computer, coupled to said data storage unit, that is configured to (a) receive a transaction; (b) electronically adjust; (c) generate an instruction.”  The claim then closely followed the method steps.

“Indeed, Alice’s method and system claims use similar and often identical language to describe those actions. Compare id.  Other claims specify additional components, such as a ‘first party device’ and a ‘communications controller.’ See, e.g., ‘375 patent col. 66 11. 65 – 66.”  “As illustrated by the obvious parallels between the method and system claims now before us, it is often a straightforward exercise to translate a method claim into system form, and vice versa. That much has long been recognized. See In re Johnston, 502 F.2d 765, 773 (CCPA 1974).”

“The computer – based limitations recited in the system claims here cannot support any meaningful distinction from the computer-based limitations that failed to supply an ‘inventive concept’ to the related method claims.”

“They set forth the same steps for performing third-party intermediation and provide for computer implementation at an incrementally reduced, though still striking level of generality. Instead of wholly implied computer limitations, the system claims recite a handful of computer components in generic, functional terms that would encompass any device capable of performing the same ubiquitous calculation, storage, and connectivity functions required by the method claims.”

“Despite minor differences in terminology, e.g., first and third ‘independent’ accounts instead of ‘shadow’ records, the asserted method and system claims require performance of the same basic process.”

“For all practical purposes, every general purpose computer will include ‘a computer,’ ‘a data
storage unit,’ and ‘a communications controller’ that would be capable of performing the same generalized functions required of the claimed systems to carry out the otherwise abstract methods recited therein.”

“But that is not the question. The question we must consider is whether a patent claim that ostensibly describes such a system on its face represents something more than an abstract idea in legal substance. Claims to computers were, and still are, eligible for patent. No question should have arisen concerning the eligibility of claims to basic computer hardware under § 101 when such devices were first invented. But we are living and judging now (or at least as of the patents’ priority dates), and have before us not the patent eligibility of specific types of computers or computer components, but computers that have routinely been adapted by software consisting of abstract ideas, and claimed as such, to do all sorts of tasks that formerly were performed by humans. And the Supreme Court has told us that, while avoiding confusion between § 101 and §§ 102 and 103, merely adding existing computer technology to abstract ideas — mental steps — does not as a matter of substance convert an abstract idea into a machine.”

Commentary: In conclusion, patent practitioners and the courts continue to “seek [a] framework that will provide guidance and predictability for patent applicants and examiners, litigants, and the courts.”  CLS Bank v Alice Corp., Slip opn. P. 9.  Given the Court’s fractured positions, although this opinion gives practitioners additional guidelines, the Court’s stated goal of  predictability has not been achieved. The leap from “a form of escrow” (an abstract idea) to “shadow accounts” and end-of-day instructions for credits or debits which are “irrevocable, time invariant obligations placed on the exchange institutions” seems tenuous and not particularly predictable.  Also, critical comments regarding claim drafting strategies and the use of  highly stylized claim language ignores a patent practitioner’s obligation to draft patent claims as broad as possible to capture his or her client’s constitutional rights to reap the fruits of their invention.

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